If you have a business, profit is probably pretty high on your list. Many people will benefit from gains. For example, investors can claim dividends, and there’s a lot less stress around increased funds. In addition, employees will feel a sense of stability. There are some companies, however, that made a choice not to be profitable. It seems unbelievable, right? This decision is made to focus on other aspects of being successful as an entrepreneur. Instead, growth is their primary focus.
It’s not to say that a company can’t grow and see profits. However, when a new company is created, it may be that aggressive growth is more important than anything else. The typical startup style of business requires growth and profit, but this isn’t easy to come by. This growth strategy has created rare examples of companies who can do both, and it often leads to businesses worth billions.
In the beginning, either save every penny (bootstrapping) or invest aggressively in the growth of the business. It should be short-term, of course. There are many opinions surrounding this; it just depends on the entrepreneur or investor you ask. It’s possible that a company can become successful by following either strategy; however, making the wrong decision in these strategies can make or break your business. So, yes, there’s some risk involved.
In the strategy of growth, you should be cautious and do it only under certain conditions. First, you want to make sure you have guaranteed funding as you’ll need a lot of capital. The more growth you achieve, the bigger your losses are in the beginning. If you don’t have funding, you don’t have anywhere to go if your cash flow runs dry. Second, you need to promote yourself aggressively to attract customers by the masses – going drastic like eliminating charges to your new customers, big offers, or even cash.
If we look to Paypal and their strategy to grow Venmo, they had to be the best in the space. Venmo is an application in the US that allows people to make payments to others on their smartphones. To become the leading app for this, they offered money transfers that reduced costs with instant transactions. Sure, it was a great product, but they needed the big giant of Paypal to back them up to get the word out and get people trying the product. They used an aggressive strategy with promotions that offered people things they couldn’t refuse, like depositing funds from a credit card with no commission. A lot of money was spent but, in the end, it was well worth it. However, if they didn’t have Paypal to help them, they would have run out of cash before the app succeeded.
Most entrepreneurs don’t have the option of this strategy. They either don’t have enough investors or cash flow even to begin implementing it.
Many entrepreneurs will go with this strategy. While this strategy can work, you are ceding users to your competition who have the capital to go with an aggressive growth strategy. However, there have been some success stories with this strategy, making it worthwhile for some companies. If you hold a large share of your company as an entrepreneur, it can work.
An example of this is Lower, a financing company that went through 7 years before getting their first investment round of $100 million. This strategy puts emphasis on expenses and takes more time for a start-up to determine success. Therefore, it is a more cautious strategy that takes more time.
Whatever your strategy, it is the product of your available capital. Other times, it will be a choice or decision you make. For example, would you take funds from a larger company knowing your strategy is to grow, or can you afford it on your own? Would you look for an investment that could take years to pay off? How much do you believe in its success? These are all questions you’ll want to ask yourself when considering the right kind of strategy for your business. Do you just want profits, or do you want to see significant growth?
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